The Department of Labor (DoL) Fiduciary Rule brings significant changes to the retirement industry. This new Rule, spelled out over more than 1,000 pages, requires financial advisers, qualified plan sponsors and other professionals that counsel and sell products and services to retirement clients, meet a fiduciary standard (in the client’s "best interest") and requires disclosure of fees and expenses associated with the retirement plan as well as underlying investment vehicles. The use of a "Best Interest Contract" is now required, establishing a fiduciary relationship with the retirement investor, reinforcing the provisions of the Rule.
The risk of litigation and regulatory enforcement for not adhering to the new fiduciary standards is quite real for financial firms and individual advisers. Safeguarding companies and advisers requires third party expertise and evidentiary defenses.
Evidence that your company including your Financial Advisers fully comply with the requirements of the DoL Fiduciary Rule can be used as a shield in defense of class-action law suits alleging breach of the Best Interest Contract and fiduciary duties. Evidence can also be provided in case of regulatory investigation or enforcement of the Fiduciary Rule, by the Department of Labor.
As a provider of objective, third party verification (TPV) capabilities for more than 15 years, Istonish can help reinforce written agreements by capturing "evidence of comprehension" from retail clients and provide solid contractual defense against regulatory investigations, class-action lawsuits and individual contractual disputes with retail consumers. We provide:
TPV can identify comprehension gaps or misunderstandings by a retail retirement investor, requiring that a financial adviser confirm terms, conditions and disclosures with the retail client, under the terms of the new Best Interest Contract. TPV feedback records, including statistics, can also be provided to the Advisers, sales supervisors and compliance – highlighting areas for improvement or Fiduciary Rule training.
Capturing, storing and retrieving "evidence of comprehension" can be difficult – even with the most advanced platforms. Using a third party to capture, index and store electronic artifacts such as customer voiceprints or digital records affirming understanding of the fiduciary's advice, with the ability to retrieve such evidence "on demand" is extremely valuable.
With "robo-advisors," where investors make their own investment decisions, there is significant value in obtaining independent confirmation of the retail client's responsiblity for understanding their investment choices (investment risks, fees, costs, liquidity, etc.), and that they will not hold your organization responsible for their independent choices.
Independent verification also enables organizations to administer business rules consistently across the enterprise. Reporting from a third party allows compliance professionals the ability to identify serious gaps in sales activities and customer interactions and correct them before there is a problem.
Exploring some compliance requirements under the BICE, together with their counterparts in general ERISA principles and the concept of evidence of comprehension as an underlying factor impacting litigation decisions in a variety of contexts under ERISA, and a proposed solution to hedge against these types of significant legal risk.